In order to limit exposure under a state workers’ compensation act, employers often seek to make new hires “independent contractors.” In forming this type of work relationships, employers are often under the assumption that the mere formality of having that person sign an independent contractor agreement sheds them of liability for workers’ compensation insurance. While signing such an agreement is essential, companies need to evaluate carefully how they conduct the work relationship after the fact as their actions may make these persons “employees.”
Independent Contractor v. Employee
Each jurisdiction has its own statutes and regulations governing employee and independent contractor relationships and set forth the legal requirements under workers’ compensation laws. These requirements are often found in statute or rule, and given meaning through case law interpretation by the courts. As a result, there are important considerations when seeking to make someone a true independent contractor:
- The right of “control” as to the means and manner of job performance, including the control of assistants;
- Level of instruction;
- Amount of training;
- Degree of business integration;
- Method of payment;
- The furnishing of work tools and other materials;
- Ultimate control over the work environment and where work is completed; and
- The right of discharge.
When establishing an independent contractor agreement, it is important to analyze the agreement under the pertinent regulations.
What Else Should I Consider?
A common element that courts review when determining if someone is truly an independent contractor for purposes of workers’ compensation is “control.” In examining this issue, it is critical to explore a variety of issues that take place during the relationship. While interpretations vary in each jurisdiction, the following matters should be considered and adjusted if necessary:
- Actual authority over how the work is performed and who makes work-related decisions;
- Performance of work duties and who is responsible to complete tasks;
- Tools and materials used in performance of the work;
- Restrictions on the hours when work can be performed; and
- Deadlines for the completion of assignments.
One of the most important factors is the “right to discharge.” This can vary based on the type of work someone is performing. An employer’s ability to discharge a worker likely points toward the establishment of an employer-employee relationship. A discharge based on contractual terms typically signifies no such association.
Tips for the Claim Handlers
Claim handlers become involved in these issues when evaluating a workers’ compensation claim on the ground it might be compensable. If there is a legal basis to deny a claim for this reason, it is important to understand the law.
- Obtain a copy of the Independent Contractor Agreement. These agreements should be in writing and if done properly, will outline the nature of this relationship and the responsibilities of each party.
- Understand the law in your jurisdiction. Some jurisdictions have very specific requirements as to what would make someone a true independent contractor. This could include the law, rules and case law interpretations. When in doubt, consult with an attorney.
- Investigate the duties of the Independent Contractor. This examination should include identifying information regarding how the work relationship was actually put into place. The various factors outlined in this article should be considered as part of any investigation.
Author Michael Stack, Principal of Amaxx Risk Solutions, Inc. He is an expert in employer communication systems and helps employers reduce their workers comp costs by 20% to 50%. He resides in the Boston area and works as a Qualified Loss Management Program provider working with high experience modification factor companies in the Massachusetts State Risk Pool. As the senior editor of Amaxx’s publishing division, Michael is on the cutting edge of innovation and thought leadership in workers compensation cost containment. http://reduceyourworkerscomp.com/about/. Contact: mstack@reduceyourworkerscomp.com.
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Do not use this information without independent verification. All state laws vary. You should consult with your insurance broker, attorney, or qualified professional.
